How to Calculate Price to Cash Flow Ratio
Price to Cash Flow Ratio (P/CF) is a financial ratio used to compare the share price with cash flow per share. The lower the ratio, the more likely that the stock may be undervalued. P/CF is more stable than Price-Earnings Ratio (P/E), since cash flow is usually less volatile than earnings. It can be calculated as follows:
Formula:
P/CF = Market price per share / Cash flow per share
Note: Cash flow per share is simply cash flow divided by the number of shares issued.
Example:
The stock for Company JKL is selling at $25 a share.
The total number of shares issued for the period is 10,000.
The company's operating cash flow for the four most-recent quarters are $30,000, $50,000, $60,000 and $70,000.
Calculate the price/cash flow ratio.
Solution,
The operating cash flow for the past 12 months = 30,000 + 50,000 + 60,000 + 70,000 = $210,000
Cash flow per share = $210,000 / 10,000 = $21
P/CF = 25 / 21 = 1.19
* Next: How to Calculate Cash Ratio
Formula:
P/CF = Market price per share / Cash flow per share
Note: Cash flow per share is simply cash flow divided by the number of shares issued.
Example:
The stock for Company JKL is selling at $25 a share.
The total number of shares issued for the period is 10,000.
The company's operating cash flow for the four most-recent quarters are $30,000, $50,000, $60,000 and $70,000.
Calculate the price/cash flow ratio.
Solution,
The operating cash flow for the past 12 months = 30,000 + 50,000 + 60,000 + 70,000 = $210,000
Cash flow per share = $210,000 / 10,000 = $21
P/CF = 25 / 21 = 1.19
* Next: How to Calculate Cash Ratio